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(Telegraph) – THE WHITEHALL SLEAZE WATCHDOG, Sir Christopher Kelly, has issued a formal warning that attempts to water down reforms to the discredited MPs’ expenses regime are “unacceptable”.

Sir Christopher has written to the new Parliamentary regulators insisting that MPs should be forced to hand back profits on the sale of taxpayer-funded second homes.

He is also pushing for MPs to be barred from employing family members and from keeping valuable electronic equipment bought using public funds.

The watchdog criticised plans to allow MPs commuting to Westminster to claim for second homes, saying the proposal was even “more generous” than the current lax rules.

Sir Christopher has intervened after the new Parliamentary regulator, Sir Ian Kennedy, published proposals which would allow MPs to continue profiting from their taxpayer-funded expenses. The chairman of the Committee on Standards in Public Life also launched an attack on political leaders for failing to avert the expenses scandal.

“In the early stages [of the scandal] there was a distinct failure of leadership in the House [of Commons] and in the political parties in dealing with the situation,” he said.

He described the expenses system as “dishonest” and said MPs attempted to hide their behaviour from the public.

Sir Christopher called on MPs to change the culture of Parliament by showing “personal values reinforced in everyday behaviour”.

The watchdog spent more than seven months drawing up detailed plans to reform the Parliamentary expenses system after the scandal was exposed by The Daily Telegraph.

His plans were welcomed by the leaders of all three main political parties.

However, Sir Ian – the head of the recently established Independent Parliamentary Standards Authority (IPSA), which is charged with policing the new system – decided to start his own consultation and has announced several changes to the proposed reforms.

Last night, Sir Christopher said people would be “surprised” that his reforms were being reconsidered. He said several of the proposed changes to his blueprint would be “unacceptable”.

In a detailed 11-page response to Sir Ian, Sir Christopher said:-

MPs should be forced to repay any profits made after November 2009 from the sale of taxpayer-funded properties.

They would be allowed to claim mortgage interest for up to five more years – after which point they would only be able to claim to rent a property, under Sir Christopher’s reforms.

IPSA said although mortgage interest claims should be scrapped, MPs should be able to keep profits made during the “transition period”.

Sir Christopher responds: “[We] concluded that continued support for mortgage interest for a transitional period for those MPs currently receiving it should be accompanied by the claw back of any capital gain made over this period.

“Without claw back, we find it much harder to justify the continuation even for a transitional period of a practice now deemed to be unacceptable.”

Sir Christopher also recommended that MPs living within a 60-minute commute of London should not be able to claim for a second home.

IPSA proposed that only those within the London public transport network would be excluded.

Sir Christopher also wants MPs to be banned from employing family members.

Although IPSA is thought to back such a ban, it has asked MPs for alternative views, indicating that it may water down the proposal.

Sir Christopher said this would not be acceptable and said IPSA also needed to broaden the definition of “family members” to include unmarried partners.

He has also proposed that MPs should have to return equipment bought using their office allowances, including digital cameras and other items.

IPSA said that such equipment could be kept by MPs.

Sir Ian is expected to come under pressure to change his watered-down proposals in the next few weeks.